(upbeat music)
-: Consider your TV at home
and compare it to the video store, the cinema, and Netflix.
Before houses had TVs, there was nothing to do,
so people went to the movies.
TV was exciting and then came the VCR
to make it even better,
the ability to record and watch videos.
Then Netflix came along
and partially ruined the party for video stores,
but not for watching shows.
People still loved watching shows.
This provides a great example
of how product life cycles work.
When video rentals were first introduced,
not many people had a VCR or a Betamax Player.
People went around to a friend's house
to watch a movie together.
It was a social event.
More and more people enjoyed it,
and that experience led to a rapid growth in the market,
but once everyone had a video player and the average person
was already watching one or two movies a week,
it became very difficult for any new growth to occur.
You can't rent out more videos than there are people
or time to watch them.
Just like a person who initially grows rapidly,
but then stops once they've reached maturity,
a product will also go through an introduction
and growth phase and then mature.
Renting movies from the video store was incredibly popular,
and the traditional way to spend a Friday or Saturday night.
But just like a person, it entered a decline phase.
While a lot of people still want to watch movies,
the delivery mechanism,
the Internet, changed and transformed the market.
So now we have Netflix and Stan who initially started
in the introduction phase
and have now achieved significant growth.
Classifying a product into the right stage
of the lifecycle is the first step.
This involves looking at
the revenues across different time periods
to track how the product is performing.
The next part of the analysis
is to understand the impact on the business.
At different stages we have different
issues to contend with.
In the introductory phase,
a large amount of cash is required for product development
and marketing, but sales are gonna be low,
so there's going to be a cash deficit.
How are you going to fund this,
and what will you do if the product is not successful?
This issue nearly sent Netflix bust when it first started
and it nearly ran out of cash while it was still trying
to win enough customers to cover its costs.
Remember, there is no guarantee
that introduction will lead to growth.
Coke with Stevia is a good example of this.
During the growth phase,
there are enough customers to share between competitors,
so there's a chance to be cash flow positive,
but you also need to keep investing
in the product by hiring more staff,
spending more on infrastructure and equipment,
and also keeping market share through advertising and
marketing.
While the maturity phase has less growth occurring,
it's still a very positive place to be,
because less cash is required
to be spent on maintaining the product.
This can often lead to a cash cow situation
if you have a high market share.
(cow moos)
But if you don't realise that maturity's arrived,
you can create significant problems.
Crocs were extremely popular,
and the organisation built more factories
and produced more inventory
to cater for this future growth,
but the growth slowed and they lost millions
because they were in maturity
or even decline before they knew it.
You also need to be careful of the decline stage.
When things start to go bad,
with sales and revenues dropping,
you need to quickly evaluate if
it is the end of the line for the product.
Hanging on too long can lead to significant losses,
but with emotional attachment
and years of organisational activity linked to making
and selling a product, it can be
very hard to stop production.
One final thing to note.
A product can experience rebirth or renewal.
If you think of vinyl records making a comeback,
you'll see that there can be opportunities
to re-create products for a new market.